3.5.1-4: Rent-Seeking

Module 3, Section 5.1-4

Rent-Seeking

5.1 Money is a symbol of wealth, it is not wealth itself although of course it is used to acquire tangible wealth. Money is an efficient mechanism for exchange of wealth. But when land is treated as a market commodity with a monetized price, the price escalates and inflates. There are no land factories making more land so that supply can meet demand at an affordable cost. A productive economy then evolves, or rather devolves, into a “rent-seeking” economy.

5.2 Considering the current nearly worldwide rent-seeking system, it is no surprise that workers desire to own homes not only as a basic necessity but also so in order to have a small stake in the land price inflation game. As wages lose purchasing capacity, the average working person is vulnerable to all sorts of schemes through which they can buy a tiny piece of land for their house to sit upon. The recent and ongoing collapse of the home mortgage system in the United States, sending shock waves throughout the banking systems of the world, is one indicator of the problem of treating land as a for-profit market commodity.

5.3 Here are two more examples of how an improperly harnessed tax system can have disastrous results for so many people:

  1. As China's economy rapidly heats up, those dealing in rising urban land values have been making enormous profits from real estate while others plunge into poverty. For instance, Yuchen Zhang, a Beijing real estate developer, built his $50 million castle complete with moat, uniformed guards, and a spiked fence to defend it. The 800 peasants who used to grow wheat on Zhang's 1.5 square mile estate are now landless.
  2. The Rand Corporation, a U.S. think tank, in its 2001 annual report, listed the April, 2001, sale of 11.3 acres of its Main Street, Santa Monica, California property for $53 million, or $4.69 million per acre. The gain on sale of Rand's land was shown to be $44.984 million, making the original purchase price $8.016 million, or $709.38 per acre. Who created this land value boon for Rand? The 84,084 people of Santa Monica as a whole, who would have each received $534 if the land value increase had been captured by the city and distributed to all residents as their fair share of the profits from such a spectacular rise in city land values.

 

5.4

Pius Fischer in his book Rent-Seeking,Institutions and Reforms in Africa...identifies rent-seeking behaviour as one of the main causes of poor economic performance, observed, among other places, in many countries of Africa. Rent-seeking describes the ability to capture incomes without producing output or making a productive contribution.

In a Rentier Economy, The Landlords Get the Free Lunch

 

In a rent-seeking economy, as land prices inflate the “haves” invest their funds into capturing the economic surplus represented by land rent and thus become the “have mores.” The private appropriation of land rent via real estate investment, speculation and profiteering is an unproductive activity lacking any social utility. Rent-seeking is plain and simple an efficient and effective way to concentrate wealth and power in the hands of a few while making life that much more difficult for everyone else.